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  1. 1. Organization Structure and Management Systems <ul><li>Evolution of the corporation </li></ul><ul><li>Principles of organizational design </li></ul><ul><li>The role of hierarchy: bureaucratic </li></ul><ul><li>control vs. modular integration </li></ul><ul><li>Alternative structural forms </li></ul><ul><li>Management systems </li></ul>OUTLINE
  2. 2. Evolution of the Modern Corporation The business environment Organizational consequences Strategic changes Late 19th century Early 19th century Early 20th century Local markets Firms specialized & Small firms. Transport slow focused on local Simple manage- Limited mechanization markets ment structures Introduction of Geographical and Functional struct- railroads, telegraph vertical expansion ures. Line/staff industrialization separation. Accou- nting systems Excess capacity in Product & Development of distribution. Growth multinational multidivisional of financial institut- diversification corporation ions & world trade
  3. 3. General Motors ’ Organization Structure, 1921 Board of Directors President Executive Committee Financial Staff Legal Department General Advisory Staff GM Acceptance Corporation Chevrolet Division Sheridan Division Canadian Division Oldsmobile Division GM Truck Division GM Export Company Cadillac Division Buick Division Inter-company Parts Division Oakland Division Samson Tractor Division Scripps Booth Corp. Source: A.P. Sloan, My Years with General Motors, Orbit Publishing, 1972, p. 57.
  4. 4. The Basic Tasks of Organization <ul><li>THE ORGANIZATIONAL CHALLENGE : </li></ul><ul><li>To design structure & systems that: </li></ul><ul><ul><li>Permit specialization </li></ul></ul><ul><ul><li>Facilitate coordination by grouping individuals & link groups with systems of communication, decision making, & control </li></ul></ul><ul><ul><li>Create incentives to align individual & firm goals </li></ul></ul>Achieving high levels of productivity requires SPECIALIZATION Specialization by individuals necessitates COORDINATION For coordination to be effective requires COOPERATION But goals of employees == goals of owners THE AGENCY PROBLEM
  5. 5. (a) Self Organizing Team: 10 interactions (b) Hierarchy: 4 interactions Hierarchy Economizes on Coordination But what about effectiveness of coordination? --Depends upon the organization’s task
  6. 6. Tightly-coupled, integrated system: Change in any part of the system requires system-wide adaptation Loose-coupled, modular h ierarchy: partially-autonomous modules linked by standardized interfaces permits decentralized adaptation and innovation Hierarchy of Loosely-Coupled Modules Allows Flexible Adaptation
  7. 7. Weber’s Principles of Bureaucracy <ul><li>Rational-legal authority </li></ul><ul><li>Specialization of labor </li></ul><ul><li>Hierarchical structure </li></ul><ul><li>Coordination and control through rules and standard operating procedures </li></ul><ul><li>Standardization employment practices </li></ul><ul><li>Separation of jobs and people </li></ul><ul><li>Formalization of administrative acts, decisions and rules </li></ul>
  8. 8. Mechanistic and Organic Forms <ul><li>FEATURE MECHANISTIC ORGANIC </li></ul><ul><li>Task definition Rigid & highly Flexible; less </li></ul><ul><li> specialized specialized </li></ul><ul><li>Coordination Rules & directives Mutual adjustment.l </li></ul><ul><li>& control imposed from the top Cultural control </li></ul><ul><li>Communication Mainly vertical Horizontal & vertical </li></ul><ul><li>Commitment To immediate superior To the organization & its </li></ul><ul><li>& loyalty goals & values </li></ul><ul><li>Environmental Stable with low tech- Dynamic, ambiguous, </li></ul><ul><li>context nological uncertainty high technological </li></ul><ul><li> uncertainty </li></ul>
  9. 9. Designing the Hierarchy : The Basis for Defining Organizational Units and their Relationships Units may be defined on the basis of Common Tasks, Products, Geographical Proximity, or Process/Function Critical issue: Intensity of Coordination— Employees with the greatest interdependence should be grouped into same organizational unit. Additional criteria: Economies of Scale, Economies of Utilization, Learning, Standardization of Control Systems
  10. 10. General Motors ’ Organization Structure, 1997 Board of Directors President’s Council Corporate Functions North American Operations Delphi Automotive Systems International Operations GM Acceptance Corporation Hughes Electronics Midsize & Luxury Car Group Small Car Group GM Power Train Group Vehicle Sales, & Marketing Group Development & Technical Cooperation Group GM Europe Asian & Pacific Operations Latin American, African, & Middle East Operation
  11. 11. Corporate Executive Office Chairman & CEO Corporate Staff Finance Business R&D Human Legal Development Resources GE Aircraft Engines GE Trans- portation GE Industrial Systems GE Plastics GE Appliances GE Supply GE Power Systems GE Medical Systems GE Lighting GE Specialty Materials NBC GE Capital 26 businesses organized into 5 segments: Consumer Mid-market Specialized Specialty Equipment Services Financing Financing Insurance Management Service Divisions General Electric’s Organization Structure, 2002
  12. 12. Mobil Corporation, 1997 Board of Directors CEO Executive Office North America M&R Technology Worldwide Chemicals North America Europe & CIS Africa & Middle East Asia/ Pacific New Exploration South America Worldwide LNG & IPP Support Services Corporate C enter Shipping
  13. 13. Royal Dutch/Shell Group, 1994: A Matrix Structure
  14. 14. The Generic Strategic Planning Cycle Corporate Guidelines Draft Business Plans Discuss with Corporate Revised Business Plans Corporate Plan Forecasts/ Scenarios/ Planning assumptions Approval by Board Annual Performance Targets Performance Review Capex Budget